Irreconcilable differences?

The best classroom teacher I ever had is Avinash Dixit (whom I was lucky to have as dissertation adviser as well). One of his remarkable traits as a teacher was that he would never treat silly or obvious questions as such. No matter how stupid a question seemed, he would stop, raise his hand to his chin, narrow his eyes, and think a long time about it, while the rest of us in the classroom would roll our eyes at the stupidity of the questioner. Then he would say: "Ah, I see what you have in mind..." and he would roll out an answer to a deep and interesting question the student had no idea he had asked. 

It is in that spirit that I have been mulling about the derision and incredulity with which my recent post on industrial policy was met among some libertarian bloggers. (See sample.) I had argued in that post that industrial policy is not unlike many other areas of government responsibility, such as education or health. My rhetoric was meant to entrap middle-of-the road economists, who see nothing wrong with governments playing a significant role in these other areas, but have an instinctive aversion to industrial policy. I had not counted on the reaction from the libertarians (whom I didn't think I would be convincing anyhow), which was: ok, now that we have shot ourselves in one foot, you think we should shoot the other foot as well?

So what are the deeper lessons?  First, I am not as unconventional as I sometimes think I am. The real revolutionaries here are the libertarians. They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there. Second, there are really deep philosophical differences here that have nothing to do with economics per se. Most importantly, I believe government can be a force for good; they do not. But third, libertarians hold on to their priors so strongly that they seem impervious to evidence. They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker. With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it.

I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second. When libertarians look at the same programs, they see one wreck after another. 

It is genuinely hard to see how we can carry out a fruitful discussion when we observe the world through such different glasses. (But I am always game when there is a substantive, empirically-based argument to respond to.)

Comments

[aje]

They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there

Could you expand on what you mean by a "real good world"?

there are really deep philosophical differences here that have nothing to do with economics

The fact that philosophy appears to be tied to economic insight might seem like a disadvantage, but I think libertarians would argue that this is always the case, regardless of how explicit. For example in your recent post on "Where do economists disagree" you made a distinction between "first-best" and "second-best". But both of these "types" only make sense within a neoclassical general equilibrium framework. There's an implicit philosophical argument in there.

libertarians hold on to their priors so strongly that they seem impervious to evidence

And to carry on the previous point, that implicit philosophical argument includes the methodology that is required to settle disagreements.

You're quite right that it can be hard to have a fruitful interdisciplinary discussion with such different visions, but you seem to be explicitly referring to libertarianism - a political science. Wouldn't it be more fruitful to stick to the discipline of economics, and rather than critique people based on their politics, confront the economic reasoning behind that?

It seems unfair to lump together people who take a policy position based on a natural rights argument, and those who do so out of the logic of economic reasoning.

They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker

I don't find this argument convincing, because it doesn't deny that government is a normal good (and demand for it rises as income does) - i.e. that the causality is the other way; and also because you seem to be conflating "strong" government with "big" government, and there's an important difference.

Finally, I was interested in your response to Leeson - you seem to accept that anarchy (as he defines it) is possible, but is impractical because it's costly to scale up. Do you find it odd that the economics profession devotes so much time to finding ways to make socialism more efficient (despite the fact that it's a utopian theory, and impossible to implement in practice), whilst anarchy (a possible alternative) receives virtually no attention at all?

[hari]

I find this subject not economic but fundamentally political in context. Because what we see, in EU today, is that Liberal political parties (libertarian gang) have seen their mortality rate increase geometrically! There's hardly any left even in Holland. What does it tell us about "libertarian" philosophy. In my opinion, the bulk of the general public are unable to follow what politics has to deliver in this day-and--age. Either govt is getting more complex or structural developments make governing rather esoteric for the public at-large. Politicians, in Sweden, therefore have to find leaders in their 30s and 40s to manage huge bureaucracy simply because they can relate to the public better than grand-old politicians. In a small country like Sweden, these types of developments have been taking place since 1960s (when I first came there as a student from Calif).
Moreover, anarchy is repellent to democratic tradition of European culture and history. So, I'm afraid, even something as anarchic as the Red Brigade (Germany) did not last long before they're eradicated. Same will apply across the board in EU-27 today.
To be an armchair libertarian is ok, for me, if you also take responsibility for what you say and do. Too often I've seen so-called libertarian movements as anarchic as Bukarian was in his prime! Adieu to anarchy!
Welcome therefore to NGOs who can spend time and energy to elucidate what's wrong in society and govt and demand or provide for corrective measures.
Don't forget there's what Marx called social contradictions - which move and transform society incessantly (irrespective of GWB and his gang).

[Dani Rodrik]

aje says:

"I don't find this argument convincing, because it doesn't deny that government is a normal good (and demand for it rises as income does) - i.e. that the causality is the other way..."

This counter-argument seems to me to be dangerous for libertarians to make. Leaving aside the methodological issues about reverse causality, if indeed it is the case that people want more government as they get richer, who is to say that this is bad or wrong? So, let's live with it! After all, libertarians would be the last people to argue with individual preferences.

[Tim Worstall]

"I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second. When libertarians look at the same programs, they see one wreck after another. "

Well, quite. Making sure that the law protects property rights, allows the creation of limited liability companies, these are good things to have, excellent parts of an industrial policy (without them, you're not going to get all that much industry, after all).
The Minister for Textile Trade being (successfully) lobbied by his brother in law to increase tariffs on imported fabrics, in order to aid said brother in law's fabric production factory, is not generally regarded as a wanted nor effective industrial policy.
The argument is indeed all about how we have more of the first, useful, things and fewer of the second, undesirable things.
That, in just about every political system yet invented, power over tariffs is wielded in the second manner, (oooh, steel tariffs to aid West Virginia, EU sugar tariffs to protect sugar beet farmers, ad infinitum) leads to the conclusion that we should allow politicians to have that power.

[Tim Worstall]

Aaargh. "should not allow".

Grr.

[Tyler Cowen]

I agree with much of what you say in this post, but not with the empirical claim: "every nation that has grown rapidly has made use of it [industrial policy]." That's true if we define industrial policy very broadly, but not true under standard definitions. It is even less true if we require that the industrial policy be responsible for the growth. Wade's book makes a good case for parts of Asia, but a great deal of industrial policy simply has been harmful, even if it users did grow rapidly at various points in time. See also Doug Irwin's paper on how little protectionism boosted 19th century American growth, or consider Hong Kong, or Chile. Industrial policy nearly ruined New Zealand in the 1970s, and so on.

[aje]

Dani, thanks for the response.

"This counter-argument seems to me to be dangerous for libertarians to make."

Just to be clear - I'm not making the counter-argument, I'm just saying that you haven't demonstrated causality and so I don't find the correlation convincing

"After all, libertarians would be the last people to argue with individual preferences."

I think that's a pretty bizarre understanding of libertarianism - they'd be the *first* people to argue with individual preferences, if those preferences are for coercion, violation of property rights, state intervention etc.

But I find it interesting that you're still targeting libertarians in this. Do you feel that it's possible to pursue a market-process view of economics (and therefore fall outside your first-best second-best distinction) and be an economist? If so can't you view these critics as fellow economists, rather than mere ideologues?

[Dani Rodrik]

Tyler--

My claim about industrial policy was phrased very carefully, and is true as it stands. The point that the actual contribution of IP needs careful analysis, including an explicit counterfactual, if of course also correct. I talk about it at great length in my paper. But the examples you cite don't make it. The U.S., just like every other country that caught up with economic leaders, used a lot of trade protection in the second half of the 19th century, and the Irwin-type arguments about how it would have grown even faster are as convincing as the argument that China would have grown faster if it had opened its economy to imports in 1978. As for Chile, it is just a myth that industrial policy did not play a role there. Name me one major Chilean export where IP did not play a role, and I will buy five copies of your book... Hong Kong is the sole exception that I know, and it not quite a "nation" and benefited from special circumstances.

[Kenji]

"It is genuinely hard to see how we can carry out a fruitful discussion when we observe the world through such different glasses."

I hear you--I've had many similarly unfruitful discussions with libertarians. These discussions are analogous to discussions between believers and nonbelievers trying to convince the other side of the existence or nonexistence of God.

At the end of the day, though, I am optimistic. Real lives are at stake, and people whose lives are at stake (i.e., not American academics) are increasingly seeing how disastrous unfettered market economics can be to development. The Washington consensus is dead---It's a good start.

[robertdfeinman]

Dani you have been the object of an onslaught by "Right Wing Authoritarians". Without any prior psychological training you have successfully managed to identify their chief behavioral characteristics.
1. A desire for a strong, authoritarian leader that they can follow blindly (let's call it Ayn Rand, but there are many others).
2. The ability to hold contradictory beliefs at the same time.
3. An unwillingness or inability to have their ideas influenced by new information, usually coupled with a superficial knowledge of the beliefs they profess to hold.

I think you will find it useful to read the book by psychologist Robert Altemeyer who has spent the past 40+ years studying this personality type. He has published a book summarizing his work and put it online for free:
The Authoritarians:
http://home.cc.umanitoba.ca/%7Ealtemey/

His work was the basis for John Dean's recent book.

Understanding this personality type won't help you win any arguments, but it will help you understand the mindset of those you have encountered better.

[hari]

Dani-this not a bad discussion with whatever "libertarianism" means. In my dictionary it's an outgrowth of 19th century Liberalism in Europe. By now, if I may be arrogant enough to suggest, it's a dead letter! That's my reading...(I'm +70!)

Let's look at it in perspective; ie. over time scale. It's obvious to me what we see/observe now as IP, here in EU, is a reflection of development in european society with its inherent advanced priorities;ie. healthcare, pension, and employment as paramount; industrial development policy has moved on to focus on its comparative advantage, as China and India takeover - more and more - global industrial production (based on their comparative advanatage).

Next, compare EU economic history on a historical perspective. EU and US national priorities lag due principally to historical developments and economic circumstances. In other words, there's ALWAYS a time lag scale involved in any realistic comparative study of IP.
EU-27(new members) are required by law(!) to adopt ALL existing EU legislation and policies (since Rome Treaty) called ACQUIS, in order to qualify as paying members. [A lot of IP across national boundaries!].

In a way, EU negotiations with new/potential members also means stadardization of industrial and other framework of policy under ACQUIS.

Libertarians will surely find Acquis as a monstrous intervention in their so-called freedom of market economy. In fact, they're wrong, if they come to that foolish conclusion.

Now, take China and India and their respective framework of IP and development. For Americans it may be difficult to accept that China is ruled under "democratic centralism". Even if Chinese "capitalism" develops into a new form of state capitalism, as a contrast to US/EU, China will be constraint to adopt market economic forces under democratic centralism.

India, on the other hand, is decades behind China in terms of development. There's no guarantee India will eventually adopt free market economic principles given its historical development perspective.

In conclusion, neither China nor India will be able to forego state intervention in IP. In fact, they have no other choice, in my view.

[Hermenauta]

For a somewhat different argument, the fact that the industrial policy of some unnamed third nations does a better job when we factor the number of cannons they use more than the import or export tariffs they set pays a tribute to
the happy coincidence that Saudi Arabia sits over a sea of oil and Chile sits over a mountain of copper.

[henry evans]

Industrial policy is really not much like education or healthcare. These are goods that can be provided through market processes, socialistically, or by some combination.

Industrial policy really can only be made by government. In this sense it is closer to things like property rights and criminal courts than to goods like health care or education.

Whether government should produce industrial policy (or, in a constitutional context, should be empowered to produce industrial policy) is a different question. But since it's something that the market can't produce, it shouldn't be analogized to healthcare and education.

[TGGP]

robertdfeinman, don't you find it odd that some of these "right-wing authoritarians" are advocating anarchy and removing power (tarrifs or industrial policy) from the most powerful autority? Ayn Rand is dead, and I was unaware if Alex or some of these others are Randians. So which supreme leader do libertarians want?

[Will Chamberlain]

"They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there."

I detect some snark here...and I think it's at least a little unjustified. This was a country founded on the principles of extremely limited government, and many libertarians would advocate the return to the political structure post-revolution - a weak federal government, with decentralized, local control, and spending by governments very low relative to overall GDP.

"But third, libertarians hold on to their priors so strongly that they seem impervious to evidence. They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker."

Holy cow is this ever a correlation != causation fallacy. The causation is the other way around. The more wealth in a society, the more wealth a government can confiscate, so the stronger the government.

Indeed, to sidetrack for a moment, one of the reasons that democracy has "succeeded" here and failed in Africa is because democracy here had the wealth created by 150 years of essentially unfettered capitalism, where as democracies in Africa were starting with almost no wealth to appropriate.

"With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it."

I think this is also a serious misconstruing of the historical record. Certainly Britain during the industrial revolution had one of the most spectacular periods of growth in history, largely due to the abandonment of industrial policy - of protective tariffs and barriers to entry.

"I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second. When libertarians look at the same programs, they see one wreck after another. "

I think the solution here is for us to go over the programs that you think are good and we think our wrecks, one at a time. Education, et al.

[Will Chamberlain]

"They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there."

I detect some snark here...and I think it's at least a little unjustified. This was a country founded on the principles of extremely limited government, and many libertarians would advocate the return to the political structure post-revolution - a weak federal government, with decentralized, local control, and spending by governments very low relative to overall GDP.

"But third, libertarians hold on to their priors so strongly that they seem impervious to evidence. They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker."

Holy cow is this ever a correlation != causation fallacy. The causation is the other way around. The more wealth in a society, the more wealth a government can confiscate, so the stronger the government.

Indeed, to sidetrack for a moment, one of the reasons that democracy has "succeeded" here and failed in Africa is because democracy here had the wealth created by 150 years of essentially unfettered capitalism, where as democracies in Africa were starting with almost no wealth to appropriate.

"With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it."

I think this is also a serious misconstruing of the historical record. Certainly Britain during the industrial revolution had one of the most spectacular periods of growth in history, largely due to the abandonment of industrial policy - of protective tariffs and barriers to entry.

"I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second. When libertarians look at the same programs, they see one wreck after another. "

I think the solution here is for us to go over the programs that you think are good and we think our wrecks, one at a time. Education, et al.

[robertdfeinman]

TGGP:
I only mentioned Rand as an example, I can't take the time to sort out all the factions in the libertarian/objectivist world. I had enough of a headache trying to understand what the feud between Marx and Bakunin was all about.

Perhaps you might like to read Altemeyer's book. He has postulated that people with your outlook will decline to do so. If you do, I'm sure you will disagree with his findings, but it would be nice to hear what you have to say _after_ you have read it.

[Joseph]

I'm a bit lost, but I'll take a stab at it. I don’t think your depiction of libertarians to be accurate (maybe b/c I consider myself one). Even confined w/i reality, I don't see anything wrong w/ the assertion that the government's involvement in health care or education may not lead to optimal results. A single payer system is not the magical cure ppl are hoping for; it probably does have some advantages though. A realistic and fair, imo, argument from a libertarian would be that is that there could be more market mechanisms and we should use a federal approach and let the states experiment on it before we implement it on a national level. On education, school vouchers would probably improve the overall quality of education and while there are positive externalities to having more kids go to school, there's no reason why we wouldn't eventually use private based student loans.

In my opinion, it's not so much that government can do thing's right. Rather, it's that government policies often end up going awry and are ineffectual. Having a strong government is important, but it is important for said government not to over-extend itself.

As for industrial policy, I think it probably works better for developing countries than more developed countries.

[Will Chamberlain]

"This counter-argument seems to me to be dangerous for libertarians to make. Leaving aside the methodological issues about reverse causality, if indeed it is the case that people want more government as they get richer, who is to say that this is bad or wrong? So, let's live with it! After all, libertarians would be the last people to argue with individual preferences."

It's not that people want more government. It's that as the level of wealth in a society grows, a government can confiscate more and more of that wealth without breaking the whole system. And governments will grow if they can...the incentives of the bureaucrats (maintaining their job, increasing their power) ensure that this will be the case.

[Joseph]

"After all, libertarians would be the last people to argue with individual preferences."

I think the foremost concern would be that against coercion.

[Lee A. Arnold]

Sometimes it seems to me that libertarians are depending upon, and hoping to inculcate by "incentivization," the fixed values and virtues of a "New Capitalist Man," --much in the same way that the communists were depending upon the arising of a "New Communist Man" to take society into their own utopia. Both paths are equally dangerous, because of course self-interest is only a part of human psychology. Perhaps the real problem is the early Enlightenment's intellectual displacement, and near forgetting, of transcendent religious experience and its various positive emotional precursors and concomitants. It is hard to know what else it could be, because it has curtailed the development of a proper understanding in a proper language. Right now we see the economists twisting themselves into pretzels to define an "altruism" component out of deeper "self-interest" that shows up in experimental games.

In the same vein -- and again just like the communists --the libertarians tend to argue by presuming that an idea or institution (whether they are for or against it) has fixed and certain consequences, no matter what the larger circumstance or historical time that it occurred in, or is applied to. It's a sort of misplaced concreteness in functionality. This is doubly curious, because surely they otherwise acknowledge that the ruling center of any institution is an emergent property, and unforecasted. (They will direct you to Hayek, who says as much.) But how else are we to take their dismissal of the corrections that can be made by transparency and elections in democracies? If an Administration is crooked, you throw them out. The argument that this can never work, or that we will always get another bunch of bums, consists entirely of shaky syllogisms about "self-interest", mixed with selective episodes from history. The argument that bigger governments must be sue to confiscations ignores that "transactions costs" and "externalities" increase, as "network effects" do also, with the size of systems.

[Lee A. Arnold]

The argument that bigger governments must be DUE to confiscations ignores that "transactions costs" and "externalities" increase, as "network effects" do also, with the size of systems.

[PJ]

"I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second."

Agreed.

Libertarians want to achieve this improved ratio by cutting the number of failed government programs. What's wrong with that?

[Captain Hook]

RobertD,

After you tried to persuade everyone over at MR that Caplan's book was wrong WITHOUT actually reading it, it is hard to take any of your reading recommendations or insults based on a lack of foundation for an argument seriously.

And please quit categorizing libertarians as authoritarians. You tried to do the same thing during the Caplan thread and it wasn't any more convincing then. It is an ideological leap for which only you have the necessary jumping abilities.

And Dani, you are one of the most arrogant econobloggers in the blogosphere (Mr. Tabarrok must be close to the top as well). By the end of the first sentence of the second paragraph, I almost gagged. Regardless of what you think of your opinion, there is no need to frame it in such a manner.

[Joshua Holmes]

They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker.

Which is why North Korea is the wealthiest country in the world, and Nazi Germany and the Soviet Union had far higher standards of living than the United States did.

Oh wait, that's not true at all.

With the end of Somalia's government in 1991, your prediction would be the end of civilization. Yet, Somalia's standard of living and development index continue to improve, and it's arguably better than a lot of the rest of Africa. Nor are many poor governments weak. They're unjust, but they're not powerless.

With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it.

You could say the same about slavery, genocide, or land enclosures.

[hari]

Dani, it seems above commentary is suggesting that anarchy is, for some better word, a better form of rule or what?

My understanding of government is not something abstract; it's an organ of state sovereignty and, if properly administered, can deliver the goods including an IP program.

Now, if govt is not good, it's responsibility of the sovereign to make changes next time.

One can't blame IP programs for deficiency of the state. That's why, in a full democracy, we debate the focal points of an issue before agreeing on how to proceed. It's not always the best system; but show me one that's better.

Some of the comments are intellectually brain-washed or outright illiterate; either you know what IP means and its raison detre or you don't.
Don't pretend you understand it when your intellect shows lack of rational thought process which is part and parcel of a nations IP. It doesn't matter whether developing or developed; a framework of IP is what makes the difference between primitive and advanced societies in human history.

[hari]

Dani, it seems above commentary is suggesting that anarchy is, for some better word, a better form of rule or what?

My understanding of government is not something abstract; it's an organ of state sovereignty and, if properly administered, can deliver the goods including an IP program.

Now, if govt is not good, it's responsibility of the sovereign to make changes next time.

One can't blame IP programs for deficiency of the state. That's why, in a full democracy, we debate the focal points of an issue before agreeing on how to proceed. It's not always the best system; but show me one that's better.

Some of the comments are intellectually brain-washed or outright illiterate; either you know what IP means and its raison detre or you don't.
Don't pretend you understand it when your intellect shows lack of rational thought process which is part and parcel of a nations IP. It doesn't matter whether developing or developed; a framework of IP is what makes the difference between primitive and advanced societies in human history.

[hari]

Dani, it seems above commentary is suggesting that anarchy is, for some better word, a better form of rule or what?

My understanding of government is not something abstract; it's an organ of state sovereignty and, if properly administered, can deliver the goods including an IP program.

Now, if govt is not good, it's responsibility of the sovereign to make changes next time.

One can't blame IP programs for deficiency of the state. That's why, in a full democracy, we debate the focal points of an issue before agreeing on how to proceed. It's not always the best system; but show me one that's better.

Some of the comments are intellectually brain-washed or outright illiterate; either you know what IP means and its raison detre or you don't.
Don't pretend you understand it when your intellect shows lack of rational thought process which is part and parcel of a nations IP. It doesn't matter whether developing or developed; a framework of IP is what makes the difference between primitive and advanced societies in human history.

[corvad]

The trajectory of this discussion completely ignores geography. That is, industrial policy and its (dis)contents are evaluated on a country-by-country, teleological basis. For example, 19th century protectionism in the UK "worked" to nurture and develop domestic industries ("mother country" industries, anyway, at the expense of the colonies: textiles, for example) in the context of intercolonial competition. The decolonization of Spanish Latin America & Spanish/French Carribbean in the early part of the century, and the maturation of British colonialism in South Asia, changed the rules of the global system game, as did the technological advances of industrialization which werre located predominantly, and not without accident nor without neocolonial military intervention, in Europe and later the U.S. 19th century liberalization should be understood as occuring in a world where the UK was in a great position to benefit from trade liberalization precisely because it had gone through the incubation of a mercantilist/protectionist period.

Basic point: why discuss industrial policy in an historical and geographical vacuum? Just because the UK, for example, benefitted from liberalization (an industrial policy oriented towards "free trade") in the 19th century doesn't mean that the evidence is strong for liberalization/freemarketIP. Individual country IP takes place in specific translocal political and economic contexts, usually in response to the realignment of private interests and power one way or the other. Workers demand protection: government can choose to partially accomodate demands (FDR, democratic context), brutally repress them (Pinochet et al in the 1970s, Mexico's Oaxaca right now) or any number of policy options such as letting those screwwed over by liberalization migrate (Europe in the late 19th century to, especially, the US and the Southern Cone of South America). These don't usually happen in a sociopolitical vacuum either -- Argentina, Brazil, Chile, Paraguay, Uruguay, recruited the white European underclass for purposes of racial purification.

IP is a political economic policy, not an economic policy. Development is not teleological, but uneven and produced by and through geohistorical contexts. The basic postcolonial point: underdeveloped countries are that way because developed countries are the way they are, and no matter how well-meaning a postcolonial government is its marginal political and economic position make it extremely difficult to make autonomous policy.

Asymmetric interdependency.

[corvad]

"Industrial policy can really only be made by government."

a. government can really only be made by ongoing political and economic contestation (elites contest, too, by lobbying, bribing, or plain old using the privilege they have to advocate policies that are friendly to them)

b. ip can only be made by one governments relationship to other governments (bilateral, multilateral trade and tariff policies).

c. ip can be made by someone else' government (ie the Washington Consensus + the debt crisis)

d. ip can be made by black market and criminal organizations that affect exchange rates and capital investment through money laundering. eg UN (bad) estimate of global drug trade as worth $400 billion, before money multipliers. how do narco dollars affect Colombia's IP, for example? Anyone notice that Colombia is one of the few Latin American countries pushing free trade these days?

[K.]

If you'd like to read some good libertarian philosophy, check out David Schmidtz's Elements of Justice (Cambridge 2006). Schmidtz suffers from none of the problems you mention.

My experience is that most (but not all) libertarians are somewhat knee-jerky, stubborn, and close-minded to evidence. However, that makes libertarians normal, because most adherents of left liberalism, conservatism, communitarianism, etc., and all other ideologies are knee-jerky, close-minded, and stubborn.

[Doug]

"My understanding of government is not something abstract; it's an organ of state sovereignty and, if properly administered, can deliver the goods including an IP program.

Now, if govt is not good, it's responsibility of the sovereign to make changes next time.

One can't blame IP programs for deficiency of the state. That's why, in a full democracy, we debate the focal points of an issue before agreeing on how to proceed. It's not always the best system; but show me one that's better."

How about one that recognizes the inherent limitations of the administrators of the state, and recognizes that in reality, the state will not always produce the goods, and that in specific circumstances the administrators are far more likely to produce bad than good--whatever instructions they are given? We could then include, in the democratic debate you refer to, the question of whether, in a particular instance, the sovreign should forbid the administrators from acting at all, or place specific restraints on the administrators' ability to act.

Isn't that what we ALREADY DO with the bill of rights, roe v. wade, separation of powers doctrine, federalism, etc.? Why should IP be automatically excluded from the category of areas where state action is subject to reasonable restrictions? What is wrong with advocating for the imposition of such restrictions, and why do you think that those who do so are calling for anarchy?

[Eric H]

"the rest of us in the classroom would roll our eyes at the stupidity of the questioner."

And my wife calls libertarians mean?

"They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there."

I think that's essentially correct: take all of the *evidence* we have of institutions that worked, improve them, and see what happens.

"Most importantly, I believe government can be a force for good; they do not."

The second part is true of the anarchists, not so of the minarchists. The key phrase in the first part is "can be". It can also not be.

"But third, libertarians hold on to their priors so strongly that they seem impervious to evidence. They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker. With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it."

Partly true, partly false, partly misleading. This is the problem with your posts: you want to claim evidence, but then load the dice with heavy rhetoric, implying that you don't want an honest debate. This is why Alex believes that your argument can be boiled down to "I'm sophisticated, you're simply."

I agree there is strong correlation between governance and freedom/prosperity (the truth); I think it would truer to characterize it as "good" rather than "strong" government. Totalitarian governments are strong, but not good, and their people are poor and not free. I think it might also be fair to say that in some cases those people are free/prosperous in spite of government, not because of it, while you seem to assume/imply causality. Also, you tend to conflate everything from those things minarchists would accept (defense) to those things few accept (the list is long) under "legitimate government responsibility" (the misleading). Although you are unfortunately not alone in this confusion, there is a symmetrical problem on the libertarian side: it is the tendency to defend the actions of private actors benefiting from state-induced distortions as "free market" (defending GM and Exxon, for example, as if the massive public investment in roads was not an indirect subsidy of the oil and auto industries).

The false bit is the claim that libertarians are impervious to evidence. Actually that would also be misleading - I submit that they are neither more nor less impervious than you. You aren't arguing about evidence, you are arguing about interpretation of it and claiming that yours is fact.

Instead of setting for yourself a task to discriminate between things properly left to a market or government, you seem to be determined to try to figure out how to justify everything the government does and maybe find new tasks for it. Proof? You said so:

"I look at the world and see some government programs that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second."

Some libertarians would rather say "I look at the world and see some **institutions** that work and others that fail. I want to understand what determines these outcomes, and to know how we can improve the ratio of the first to the second. As a side constraint, I want to prevent the world from becoming dominated by a few powerful people."

[Eric H]

Yeesh, that should be "simple" not "simply".

[John Pertz]

Wow, talk about a topic that is inanely long on generalizations and preciously short of specifics. I guess my question about "heavy handed" industrial policy is if it worked so fabulously for America and Britain in the past why isnt it here now? Also, for the advocates of heavy handed industrial policy, do you not take it as a point of faith that insulating infant industry from foreign competition can also work against a country due to a loss of pertinent information?

[paine]

talk about your
"instinctive aversion"

we need a more robust
explanation for the state

why do states exist

the purest strains
spawned by the cult
of personal liberty
can't entertain
any social "enhancement"
a state provides

its like the story of nimrod
the folly
at the origin of "civilization"

a second original sin

the last 6 thousand years of human social "evolution"
has been caught up
in the horrorfying
growth of
a larger and larger
utterly dysfunctional institutional tumor
called THE STATE
and right
its right smack dab
in societies headquarters .....

my my
that's about as far from hegel as one can get ...eh ??

[paine]

""They envisage a real good world out there that looks like nothing we have now (or have ever had), and they want us to get there."

well my final society
as a red
and theirs prolly look quite similar

both stateless

but ahh don't we diverge
about the optimal
path right ahead of us

ps

hows this for
some nice
dirty trick dia-mat-ing

the social mission
to end
the state
must come thru
multiple morphs
of the state itself

unspool the logic
that
as it proceedeth
thru cleo's contradictions
and we're back
here in kansas
"under"
the saddle again

[Sean]

Dani, have you ever read the paper "Trade and Growth" (focusing on Japan and Korea, two ostensible "industrial policy success stories") by your colleague Robert Lawrence (with Columbia's David Weinstein)? I'll let the abstract speak for itself:

"It is commonly argued that Japanese trade protection has enabled the nurturing and development internationally competitive firms. The results in our paper suggest that when it comes to TFP growth, this view of Japan is seriously erroneous. We find that lower tariffs and higher import volumes would have been particularly beneficial for Japan during the period 1964 to 1973. Our results also lead us to question whether Japanese exports were a particularly important source of productivity growth. Our findings on Japan suggest that the salutary impact of imports stems more from their contribution to competition than to intermediate inputs. Furthermore our results indicate a reason for why imports are important. Greater imports of competing products spur innovation. Our results suggest that competitive pressures and potentially learning from foreign rivals are important conduits for growth. These channels are even more important as industries converge with the market leader. This suggests that further liberalization by Japan and other East Asian countries may result in future dynamic gains. Our results thus call the views of both the World Bank and the revisionists into question and provide support for those who advocate more liberal trade policies."

[Sean]

Oops, forgot the link!

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=199493

[corvad]

"the state" is not a unitary, abstract set of institutions that is separate from the multiple scalarations (with apologies to paine) of society.

it is a set of power relationships.

so is "the economy."

both are in serious need of accountability.

[jonfernquest]

Libertarians are like the ghost of Milton Friedman.

A little scary and obnoxious but easily ignored.

Especially, when you realise it is just an artifact of American intellectual hegemony and the spread of economics departments and their ideologies throughout the world.

Political economy deals with the whole system which is historically more accurate. Modern Germany, Japan, France, Korea, the state played a much more important role in their development.

Perhaps government intervention in economic development is a cultural impossibility in some specific cultures like the US.

The libertarians do have good universal points about not intervening militarily in the political affairs of other states, like the Iraq War.

[Dani Rodrik]

Sean --

Thanks for the reference. I am of course aware of it. I discuss in my paper why this and other similar papers actually do not have any clear implications for whether IP worked or not.

Link: http://ksghome.harvard.edu/~drodrik/Industrial%20Policy%20_Growth%20Commission_.pdf

[TGGP]

rdf: I only mentioned Rand as an example, I can't take the time to sort out all the factions in the libertarian/objectivist world.

me: If you don't have anything informed to say about a topic, don't say anything at all. Don't call people authoritarians (especially anarchists!) unless you have evidence that they actually are authoritarians.

rdf: I had enough of a headache trying to understand what the feud between Marx and Bakunin was all about.

me: From what I recall, Bakunin was an anarchist (though a collectivist rather than individualist) and rejected the dictatorship of the proletariat. Seems simple enough to me.

rdf: Perhaps you might like to read Altemeyer's book. He has postulated that people with your outlook will decline to do so. If you do, I'm sure you will disagree with his findings, but it would be nice to hear what you have to say _after_ you have read it.

me: I already discussed this in my last comment at http://www.marginalrevolution.com/marginalrevolution/2007/07/nicholas-kristo.html#comments and am not going to repeat myself. I also perhaps should be offended at the "your outlook" part. Altemeyer is focused on right-wing authoritarians. I am not sure if I can be classified as right-wing (I despise the people who make up the right in todays politics and often find myself more in agreement with the radical left), but there's no way I'm an authoritarian (David Friedman can be approximately thought of as a substitute for me, and his discussions with Altemeyer at his blog the latter never made any indication that the former was one). I respect no authority, be it my country or countrymen, humanity, Kings and Sultans or God, which is explained well at http://www.alamut.com/subj/the_self/stirner/prefaceEgo.html by Max Stirner. If you were to assume I was one, that would rise to the level of willful misrepresentation of my views and would reflect very poorly on your standing as an honest partner to engage in discussion with.

[Lee A. Arnold]

To get back to the original argument: I question whether industrial policy is like the other interventions in education, health, social insurance. Those deal with standardized and universal baseline provisions. Industrial policy will be far more difficult to manage because it must be variegated and changing, due to external competition. And it ought to have sunsets measured in decades, to try to avoid lock-in and capture.

I also doubt whether the conventional government interventions in education, etc. are due primarily to market failures. I would like to read a bit more about who says this, and how they argue it. I think one of your other commenters got it right, in pointing out that these interventions are largely made necessary by the unequal distribution of income and wealth, resulting from and/or exacerbated by the vicissitudes of life.

Of course unequal distribution can be the cause of a market imperfection, for example incomplete information, but is there any argument that unequal distribution is itself a market imperfection? It looks like a structural condition. The 20/80 rule, or a fractal like it, looks like a structural condition popping out at every level in the life and social sciences. (Economists may in fact show a bit too much disciplinary pride in supposing that it falls under their purview, however little they actually administer to it.)

The cause of unequal distribution matters a good deal. If it is in fact structural, then we should correct for unequal distribution as much as we can without causing irreparable moral hazard or engineering an even worse state of affairs. Government intervention in education, health, social insurance is an excellent paradigm. The execution will never be perfect, but if it keeps a low overhead, is simple, transparent, and responsive to the electorate, it also runs a good risk of reducing time-and-material transaction costs and increasing productivity.

It could be that an argument for a temporary industrial policy can follow this line, if a developing country has enormous differences in wealth.

[Bruce Wilder]

I don't do it anymore, but back in the days of Compu-serve & USENET, I got into extended arguments with some pretty thorough-going libertarians.

That was a long time ago, of course, and perhaps a bit out of the mainstream -- before Bush or blogs, in any case.

I felt they often made arguments adapted for tactical advantage in the debate, which irritated. But, I did not usually felt that I was up against strong priors, as you put it, so much as I was involved with someone, who wanted to build from first principles a complete and self-sustaining a priori justification for government. The ardent belief that this or that could better be handled by "private" and voluntary cooperation often amounted to a demand that social groups re-invent the government on an ad hoc basis, as the need arose, or that my interlocutor and I work out first principles for such an enterprise in advance of any such undertaking.

The resistance to historical experience (I am not well-enough informed to be able to cite actual empirical results), I found, was mostly of the "true socialism has never been tried" variety, which was so common in the 1950's among recovering Stalinists. It is true that counterfactuals were also sometimes offered as evidence -- but that's a fault in no way limited to libertarians.

But, the desire for a comprehensive analysis, built from first principles, to determine the right and the good -- that can be characteristic of libertarians.

It made me understand that my own relationship with experience is less about evidence for some proposition, than it is about setting bounds on concepts and analysis. I regard the questions as open-ended, and the available answers incomplete. I don't really expect to find the complete and perfect answer, or to ever advance beyond tentativeness and conditionals.

And, then some bright fellow pointed out to me that the role of government -- THE ROLE -- wasn't some list of functions, it was to paper over gaps and provide bounds. If there were anything like a perfect solution to a problem, and we knew what it was, we did not really need government, per se. It was the open-ended, incomplete problems that became the subject of politics. Market failure means we don't know how to do it perfectly; we may hand it over to government, but we (the government) still do not know how to handle the problem, whatever it is, perfectly -- it is still a failure, only now it is a government failure. Except that all the tasks assigned to government tend to be like that: messy, incomplete, without neat, finished "solutions".

It seemed saner and more profound when I was thinking it, than when I wrote it down, but I guess I will post it anyway.

[paine]

bruce
obviously
collective action
by for and of
the whole people
is not always a state action

government orged
on the fly
is not "the state"

maybe here's
one clear aspect
of all state requiring societies

the society
"is made up "
out of several
mutually
antagonistic
cross interested
win one lose other
classes

in order to need a state a society may need
to be built with a huge chunk of
potentially
dangerous and powerful
stymied human elements

"internal "opponents
in a perpetual
condition
of pre rebel yell

[Simon Lester]

"They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker."

The old Soviet bloc and modern day Cuba would seem to be strong evidence against that.

"With respect to industrial policy proper, they refuse to engage with the fact that every nation that has grown rapidly has made use of it."

The problem with that argument is that every country that has not grown has also made use of industrial policy. In essence, everyone uses industrial policy but not everyone grows, which suggests that perhaps industrial policy is a red herring in the quest for growth.

[Erik]

Libertarians are authoritarian and desire a strong leader? Hm... Have you ever been to a libertarian meeting of any kind? I can't think of a less authoritarian bunch of people for the life of me. And people never agree on anything, the debates goes on forever. I think you make stuff up.

[Ivan Kitov]

Obviously, directing educational and health related policy any government controls a good part of industrial policy. Private companies associated with this kind business (plus weaponry) are forced to meet demand inspirited by the constraints by governments. So, effectively, any government has a strong influence on industrial policy, not explicit, although.

The problem with explicit industrial policy is not that it is worse than that defined by market. It can be wonderful and more efficient than any market. Imagine, every year give birth to 6,000,000 small and middle size companies in the USA. Around 80% disappears in a year. So, tremendous efforts of these people disappear as well for nothing.
The problem of industrial policy is that nobody can guarantee that it is right. Consequences of private failures do not spread beyond a limited circle. What is about governments? It hits all the society. So, people are reluctant to allow any global catastrophe, even if the alternative is a better, safer, happier, etc. world.

There exists a severe confusion on the identity between monetary and technological evolutions. There is no direct interaction between these two processes. Technology evolves in many dimensions and sometimes depends on genius efforts. Important break-through happen not often, but in monetary terms developed economies evolve at almost constant pace, if to use real GDP per capita increment, not growth rate, which decays with time. So, the influence of a government defining where to go with technology should not hit monetary evolution. And this allows even a bigger space for potential mistakes. Successful monetary evolution, which does not depend on the technological one, will be used in support the government and create some euphoria – the first step to mistakes.

Hence, if one sees that government can provide a better usage of resources – it is right. States are able to conduct research which is not available to private companies – weapon, space, etc. On the other hand, risk aversion does not allow crossing the border of common sense – if you allow the first step it will be very difficult to stop the state.

[TGGP]

The problem with explicit industrial policy is not that it is worse than that defined by market. It can be wonderful and more efficient than any market. Imagine, every year give birth to 6,000,000 small and middle size companies in the USA. Around 80% disappears in a year. So, tremendous efforts of these people disappear as well for nothing.
The market is efficient BECAUSE so many businesses fail. When an idea doesn't work out, people stop pursuing it. When a governmental agency does a poor job, it can take forever to get rid of. If those companies had not gone out of business but had been subsidized instead they would still be wasting effort and money.

[KIO]

Trail-and-error is a powerful method of research. But not the best, as the evolution of hard sciences showed us. Sometimes one needs to deduce and do not make same mistakes any more.
The free market usually is not the best in deduction due to imperfectness of information.
The logic of market perfectness works only in infinite societies. When the number of agents is limited even one failure can result in a significant underperformance.

[samson]

Dani, don't let the vocal libertarians dissuade you from blogging. Your perspective is fresh and frequently supported. I'm willing to hear people voice their concern about market mechanisms, instead of reacting with the vehemence of an awakened grizzly.

[Per Kurowski]

I said it once and I say it twice. It is much better being a libertarian, a nudist, but being a trade and industry policy libertarian going around naked in what is supposed to be a nudist camp, but where you in fact are surrounded only by non libertarians or even outright peeping toms… is just plain stupid.

I sure wish we has a very strong government that managed to keep these peeping toms out, because there is no doubt that they are lustfully preying on us while prospering… the same way they have evidently done in the past. If they can’t do that well then evidently we are better of acquiring some peeping tom lustfulness ourselves.

[WB Reeves]

If we take libertarian in this context to refer to those under the influence Randian "objectivism" then your point about wildly varying perspectives is well taken.

It's important to understand that fundamental to Rand's perspective is the believe that "objective truth" may be ascertained through philosophical espistemology. Hence the term "Objectivist".

Now this is profoundly different from what most, arguing from a perspective informed by scientific ideas of objectivity, would consider an objective approach. Philosophical epistemology, with its reliance on formal, self referential, systems of logic, is driven by it's premises to entirely predictable results. Absent any mechanism for systematically re-examining its premises in light of new data, such modes of analysis will inevitably lapse into a sterile, dogmatic scholasticism.

Hence the resistance to new data that you describe as being "impervious to evidence".

This is, of course, nothing unique to Libertarianism. What makes right wing Libertarianism stand out are the characteristic qualities that it shares with vulgar Marxism. A crude economic reductionism married with a confident assumption of its own "objective" rightness. Correlatively, it shares in the weaknesses of such a perspective as well. Forced to choose between their epistemology and fact, epistemology is the default.

[Chris]

"They shrug off the fact that there is more freedom and more wealth in those parts of the world where the government is stronger, not weaker."

I would argue that there is a significant difference between the desire to diminish the SCOPE of government rather than the STRENGTH of government. Poli Sci 101 definitions: scope is how much the government promises its citizens (generous welfare, etc), while strength is how effective the government is in controlling its citizenry.

To me, this idea separates the more reasonable libertarians from the Randian evangelists. Having a weak government doesn't do anyone good (see: Somalia), but having a government that is burdened with expensive welfare systems and state owned enterprises can put a serious drag on long term capacity for growth.

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